In determining net rental income (which is property), capital cost allowance (CCA) cannot be used to create or increase an operating loss. This restriction applies to the total net rental income, and does not apply on a property-by-property basis where the taxpayer has more than one rental property. The Act contains rules that prevent a taxpayer from creating or increasing a rental loss, where the source of the loss is rental property, by claiming a deduction for CCA. These rules, which do not apply in situations where rental activity constitutes a business, are set out as follows:

• In the case of rental properties: REGs 1100(11) to (14.2); and

• In the case of leasing properties: REGs 1100(15) to (20).

(Leasing properties include furniture, fixtures and appliances in rental properties, industrial machinery, equipment, pleasure craft, and aircraft, used principally for the purpose of gaining or producing income that is rent, royalty, or leasing revenue.)